Minolta Camera – Case Analysis

Minolta Camera – Case Analysis

Why is Minolta facing a grey market problem at the time of the case? In your answer, appeal to the consumer service output demands in the market where grey market product is sold: channel flow performance and Equity principle?

At the time of the case, in Europe and the United States, there exists a parallel market wherein Minolta cameras are being smuggled and being sold illegally at much cheaper prices as compared to official Minolta distributors. These cameras are being sold under the same brand umbrella, thereby eliminating any difference between the models being sold the world over (Japan vs. any other market).

Service Output Demands:

• Bulk breaking: From Japan, the Minolta cameras are smuggled to Hong Kong by sailors who work for said smugglers. The cameras are then aggregated and shipped overseas (Europe and the US). Once they land on the shores of these countries, they are purchased by large retailers, discount stores, and sometimes, even Minolta’s ‘official’ distributors.
• Assortment: As a result of this widespread smuggling operation, Minolta’s entire product range is available everywhere they operate.
• Customer Service: Retailers usually have a significant say in a customer’s purchase decision when it comes to a device as complicated as an expert camera. Most customers rely heavily on the advice imparted by the retailer.

Channel Flow Performance:

• Ownership: The inventory in this case was owned by the smugglers and then sold overseas to Europe and the US
• Risking: There’s a huge risk associated with running these types of operations. Although strictly legal, several relationships needed to be maintained in Japan, Hong Kong, Germany etc. and all under the radar. You always ran the risk of being discovered, supplies being cut off etc.
• Physical Possession: Not just ownership, the smugglers had actual physical possession of the inventory for the entire duration of it being smuggled until its final destination.

Where is the grey market product originating? Trace the flow of gray market and show financially how the grey market is supported.

Due to a monopolistically competitive market-led pressure prices in Japan, the prices of Minolta cameras there were significantly more competitive (lower) than prices anywhere else in the world. This led to the origination of a ‘grey market’ wherein sailors who, when employed by smugglers, used to buy individual tax-free cameras, take them over to Hong Kong and sell it to the smugglers. These smugglers would aggregate large shipments of such cameras in Hong Kong, and then ship them as large sale orders to department stores/ discount stores in Europe and the continental US.

As observed in the exhibit above, the Hong Kong exporter can offer very cheap prices indeed. Upon purchasing the product from Hong Kong, he would demand a very low price mark-up (usually in the 5% range) – even then the resulting landing price (including shipping expenses) would be a huge margin lower than the base prices in Europe and the US. For example, the shipping cost to Munich from Hong Kong would result in the exporter having to pay roughly 20.5% of the FOB Hong Kong value for freight, insurance, and import duty.  

...